Bridging finance

Bridging finance is a loan that enables you to buy  a new home  while waiting for the sale of your existing property. With bridging finance you effectively ‘own’ two homes at once, as well as two mortgages.

Your current lender will usually be able to provide you with bridging finance, which is normally provided for a period of up to three months – but sometimes longer. They are usually set up as interest only loans, with interest rates comparable to current variable rates, but sometimes can be one to two percent higher.

Unfortunately, you’ll generally be up for a new set of loan application fees and establishment fees (approximately $600 to $1,000, depending on your particular mortgage product). This is on top of any new mortgage fees you’ll pay for your new property.

Be aware that bridging finance is usually not available if you have less than 20 percent equity in the property you plan to use as security.

What happens if you’ve been on bridging finance for a few months, and selling your property  is taking much longer than expected ?

This can be a very stressful time and you’ll need to consider your options very carefully. There are many options available to you and you should seek professional advice from your accountant and/or lawyer. 

Some of your options may be:

- To keep paying off two mortgages, while you are waiting for a sale. This requires a very large cash flow, and for most people is not practical or possible.

- To sell your property at a reduced price. Be sure to do your sums properly and ensure that you can afford the higher level of the new mortgage on your new property.

- If you cannot afford the increased mortgage, by accepting a lower sale price for your property, consider the option of asking a relative or friend to buy the property in partnership with you. Click here for some things to remember when buying property in partnership with other people.